“No insolvency application. Instead, nine billion euros from the treasury, the partial nationalisation of Lufthansa and everything approved by Brussels. When Group CEO Carsten Spohr appeared in front of the camera at the start of the airline’s Internet AGM on Thursday, major uncertainties had just been removed to secure the future. Spohr spoke of a historic moment.
After a six-hour general meeting and the answer to 638 questions, the rescue was finally determined. In the vote, there were just under two percent of the vote against the billion-dollar package. Just over 98 percent voted in favour. Chairman of the Supervisory Board Karl-Ludwig Kley expressed his visibly relieved remarks by saying: “We can do this.”
Lufthansa CEO Spohr had previously spoken of a week of fate for the airline. He alluded to the Munich self-made billionaire Heinz Hermann Thiele. The 79-year-old had threatened to veto the government as a major shareholder.
Because only 39 percent of the capital was represented at the Annual General Meeting, he could have blocked everything with his 15.5 percent package because a two-thirds approval rate was required.
At the beginning of the Annual General Meeting, Chairman kley again warned of the impending insolvency of the airline if the state could not help as a savior in the Corona crisis. “We don’t have any money anymore,” Kley said. Support is therefore needed. But he also admitted: “It’s a lucrative business for the state. We are happy for the taxpayer.”
Lufthansa’s management was able to breathe a sigh of relief just before the shareholder meeting. In an interview with the Frankfurter Allgemeine Zeitung, major shareholder Thiele announced that he would approve the rescue package. With his move, he wants to clear the way for management talks with the unions for necessary restructuring.
Major shareholder’s veto threat
His veto threat was for days a sword of Damocles scenario for all involved. Thiele, however, would probably have lost hundreds of millions of euros from his share package in the event of insolvency. Several times at the Annual General Meeting it was emphasized that in the event of insolvency, all shares would become almost worthless.
So Thiele has earned at least millions. Lufthansa’s share price rose about 7 percent on Thursday. The entrepreneur has only recently bought shares again.
Thiele was not able to attend the virtual general meeting in person. But he submitted a long catalogue of piercing questions. He did not just want to know whether the Corona protection measures on this scale were actually necessary in air traffic.
In detail and in question form, he also demanded clarification on the details of the state’s entry. He wanted to know whether there had been alternatives to partial nationalisation, which the Lufthansa boss denied.
Other shareholders also doubted the need for federal participation. As Spohr said, private-sector solutions were examined, but “in the absence of realisation” were rejected. It would not have been possible to meet the immense capital requirements through the financial markets and under time pressure.
Shareholders were concerned that the state would not actually withdraw from its 20 percent stake, as planned by the end of 2023. Sales of parts of the company or aircraft are an option to take money for repayment, Lufthansa said in its response.
As Spohr said, the state withdraws as a shareholder “as soon as we have repaid the nearly six billion euros in silent partnership contributions and interest.” Spohr literally: “The stabilization package is not a gift.”
State enters cheaply, taxpayers can hope for profit
Shareholders were strongly critical of the low issue price of EUR 2.56 per share for the State and the exclusion of shareholders from the capital increase. “That’s the outcome of the negotiations,” said CEO Michael Niggemann.
Cheaper interest rates in the rescue package were also not possible because of EU requirements. The rescue package stipulates that the State Economic Stabilisation Fund (WSF) will subscribe for around 300 million euros of shares as part of a capital increase. In addition, silent partnership contributions and a KfW loan are planned.
The billions from the treasury are now helping Lufthansa transfer money to thousands of customers for tickets that have been canceled because of the Corona crisis. I could compete. Lufthansa CEO Spohr said the repayments will be made within six weeks at the latest. Executive Board member Niggemann spoke a little more broadly of two months.
There were requests for refunds of more than EUR 1 billion. So far, 186 claims for delayed repayments are pending. It is an open secret in the industry that Lufthansa is delaying the repayment in order to keep money in the cash register.
One of the good news for Lufthansa’s management was the approval by the EU Commission of the federal bailout billions shortly before the Brussels Annual General Meeting. However, it has been linked to conditions such as “sufficient state remuneration” and the surrender of air rights.
Commission Vice-President Margrethe Vestager said: “This will give competing airlines the opportunity to enter these markets, ensuring fair prices and greater choice for European consumers.”
Immediately before the Annual General Meeting, there was also an agreement with the Ufo union for cabin crew to avoid operational redundancies by June 2024. The monthly working time is to be reduced.
Lufthansa is hoping for a 17 percent reduction in personnel costs. According to previous data, at least 22,000 people are expected to lose their jobs among the 138,000 employees worldwide. According to the Board of Management, there will be operational redundancies at the catering subsidiary LSG in North America.
